“Walmart realized that in order to deliver value—and to help differentiate it from low-cost rivals—it also had to emphasize service,” said Neil Saunders, managing director at GlobalData Retail, in a Tuesday note. “From our own store visits, the greater availability of associates was noticeable, and there was far more activity on the shop floor with demos and entertainment helping to improve conversion rates among shoppers.”

U.S. Chief Executive Greg Foran on the post-earnings call highlighted a decline in wait times for the click-and-collect service, which allows customers to purchase items online and pick them up in-store. Same-day store pickup grew by 27% year-over-year, the company said.

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Wal-Mart reported adjusted earnings per share of $1.30, beating the $1.28 FactSet consensus. Sales totaled $130.9 billion for the quarter, up from $129.7 billion last year but below the $131.1 billion FactSet estimate. Same-store sales for Wal-Mart U.S. rose 1.8%, ahead of the 1.3% FactSet consensus.

“As simple as these steps might be, they proved to be critical moves in terms of defending and growing share over the holiday season,” Saunders wrote.

Brick-and-mortar stores are fighting with e-commerce for sales as more shoppers opt to make purchases from home, and, specifically, shop with Amazon.com Inc.
AMZN, -1.80%
Retailers are looking for ways to drive customers through their doors with service offerings and other attractions that can’t be replicated online.

Retailers with lots of store locations are also looking to leverage their value. Features like click-and-collect save on shipping costs and provide the opportunity to add items to a sale, for example.

“Solid Wal-Mart results [are] indicative of both execution and a healthy moderate customer,” said Cowen & Company in a Tuesday note. “We’re encouraged traffic was positive for the ninth consecutive quarter at a 1.4% increase year-over-year (on top of a 0.7% increase last year) as Wal-Mart continues to improve the shopping experience.”

Cowen rates Wal-Mart stock outperform with an $83 price target.

The health of the customer could be called into question if the proposed border-adjustment tax goes into effect. Retailers including Target Corp.
TGT, -0.34%
, Gap Inc.
GPS, +0.49%
, and Best Buy Co. Inc.
BBY, -0.86%went to Washington D.C. last week in opposition to the tax, proposed in Congress, which could impose a 20% tariff on imported goods.

“Anything that would potentially raise prices on customers is a concern for us,” said Wal-Mart’s Chief Financial Officer Brett Biggs during the Tuesday media call.

Wal-Mart has been investing heavily in its e-commerce channel, with acquisitions of outdoor retailer Moosejaw and Shoebuy among the recent purchase announcements.

“While margins overall softened slightly year-over-year, we anticipated this given Wal-Mart’s various strategic investments in, among other things, people, price and continued expansion online, and thus were well within our expectations, especially when also factoring in the highly promotional environment that was evident throughout the holiday season,” said Moody’s lead retail analyst Charlie O’Shea in a statement.

Buckingham Research expressed concerns over when Wal-Mart’s revenue growth will overcome the challenge of these investments.

“We expect Wal-Mart shares to trade slightly higher today on these results but the question that remains unanswered in our minds is when sales growth can overcome investment spending and translate into earnings growth,” analysts wrote. Buckingham Research rates Wal-Mart shares neutral with a $69 price target.

Though the investments are seen as a drag, analysts support the move, believing the long-term benefits will be worth it.

“We see this as sensible and aligned with the way Amazon sacrifices short-term profit for long-term gains—the difference being that Wal-Mart, even with these investments, remains a much more profitable entity,” said GlobalData’s Saunders.

Wal-Mart’s shares are up 9.4% for the past year, while the S&P 500 index
SPX, -1.54%
is up 21.5% for the period and the Dow Jones Industrial Average
DJIA, -1.24%
is up 24.8%.

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